Ulrich Beck: exploring and contesting risk

Abstract

While risk research normally understands risk as an entity that can be calculated using statistics and probabilities – and which therefore also can become the object of insurance technology – it is the production of new, non-calculable risks and therefore also risks that cannot be insured against, which is at the centre of Ulrich Beck’s risk society theory. The article examines Beck’s conceptualization of risk and discusses how he has clarified and further refined the concept since publishing Risk Society in 1986. The article shows, first, how Beck understands risk as an entity that is neither danger nor risk in the traditional sense but rather something in between, which he refers to as ‘man-made disasters’ and ‘new risks’. The discussion then addresses Beck’s position in relation to the ontological status of risk, which is an intermediate position between realism and constructivism. The non-calculability and non-insurability of the new risks are also examined. The article discusses what it means that the new risks are not visible and the significance of non-knowledge for how we understand them. Finally, the new conditions of existence for politics, states and individuals are outlined in the aftermath of Beck’s risk society theory. The article concludes with a discussion of the analytical potential of the theory.     

Change and commitment: beyond risk and responsibility

Risk and responsibility have always been linked philosophically in the Western tradition. The purpose of this article is to discuss possible alternatives to the centrality of the risk discourse, arguing that such alternatives call for a revision in the concept of responsibility, decoupling it from the aspirations of control over Nature and the future. It implies also a more complex relation between knowledge and action. Rather than believing that contemporary global challenges will be sufficiently met by being responsible under risk, we will explore how to stay committed in times of uncertainty and change.     

Evidence-based financial reporting regulation

In this introductory paper at the Abacus Forum on International Financial Reporting, I contend that it is difficult to argue that financial reporting and disclosure regulation around the world is evidence-based. Anecdotes and references to more systematic research and surveys of research are used to demonstrate this. 'Evidence-based' is a term that I borrow from medicine. There the term stands for basing medical patient care and health policy choices on the 'current best [scientific] evidence'. I contend that financial reporting and disclosure regulation (and perhaps practice as well) are currently not evidence-based in the specific sense of not being based on the current best scientific evidence available about accounting and auditing. Next I discuss possible causes of this state of affairs and look at future possibilities for financial reporting and disclosure regulation to become (more) evidence-based. The discussion ends by providing a link with the papers that follow in this issue.     

Evolution of futures studies

This article discusses the evolution of futures studies. The article starts with an evaluation of the different rival taxonomies and definitions for futures studies, and proceeds to discuss the very concept of paradigm. Are there paradigms in this discipline? If we think there are, what kind of arguments can we use to define those? I argue that there have been two paradigms in the evolution of futures studies so far, and there are signs of emergence of a new one. Both of the existing paradigms have had many rival macro-level methodological approaches, ontological and epistemological branches, and phases of evolution. The first paradigm is the age-old prediction tradition that combines thinking about the future into mystic explanations. This line of thinking bases its argument on the deterministic future and effects of the world of spirits. The second paradigm was basically started in the U.S. military after World War II. This modern line of thinking bases its argument on indeterministic futures, probabilities, aim to control and plan, modelling and systems thinking, and the effects of external trends. The new emerging paradigm may base its line of thinking on disconnecting from the western control based technical thinking, and accepting internal dynamic fluctuations, paradoxes and dialectic thinking.     

Health transitions in a globalising world: towards more disease or sustained health?

In this paper, we argue that the concept of transitions is a useful way to address future changes in the health status of the world due to the processes of globalisation. To that end, we discuss the current forces affecting human health and the health transitions we have seen in the past. Next, we describe developments in the health status of populations according to three potential future ‘ages’: the age of emerging infectious diseases, the age of medical technology and the age of sustained health. Future health transitions are explored along the lines of four development paths (scenario groups), defined along two dimensions (global versus regional dynamics and emphasising economic objectives versus environmental and equity objectives). We conclude that managing the health transition effectively will require a micro- and macro-approach, taking into account the social, cultural and behavioural determinants of health.     

‘Real without being concrete’: the ontology of public concern and its significance for the Social Amplification of Risk Framework (SARF)

Abstract

Public concern is a pivotal notion in the risk perception, communication and management literature. It is, for example, a central concept with regard to the social amplification of risk, and as a justification for policy attention. Despite its ubiquity, the notion of public concern remains a ‘black box’ presenting a poorly understood state of affairs as a reified matter-of-fact. Paying attention to the deployment and metrics of public concern, and the work it is required to do, will enhance the power of approaches to understanding risk, and policymaking. Thus, the broad purpose of this paper is to unpack the notion of public concern by adopting an ontological yet critical perspective, drawing on a range of literature that considers ontology. We reflect on how publics and public concern have been conceptualised with regard to the dichotomies of individual/social and private/public, given that they imply different levels and dimensions of concern. We draw on empirical work that illuminates the assessment and measurement of public concern and how the public have responded to risk events. Considering public concern through an ontological lens affords a means of drawing renewed critical attention to objects that might otherwise appear finished or ready-made.     

Hope and anticipation in education for a sustainable future

Global sustainability problems pose serious challenges for humanity. In handling these problems education for sustainable development (ESD) is seen as important. Different key competences that ESD should focus on have been introduced, such as the ability to deal with future dimensions. Still, studies indicate that future dimensions are not always included in ESD and that many young people are pessimistic concerning the global future. Therefore, one could argue that a focus on anticipatory emotions, especially hope, should be included in ESD. There is a worry, however, that hope will lead to unrealistic optimism and/or less engagement. The aim of this paper is to problematize the discussion about hope in relation to ESD and the global future by grounding it in theories from different disciplines and in empirical research about young people, hope, and climate change. The review shows that hope is a complex, multifaceted, and sometimes contested concept. Hope can be related to denial, but in other cases it can help people face and do something constructive with their worries about the global future. The close relation between hope and trust is emphasized and a need for critical emotional awareness in ESD is argued for.     

Aggregate earnings and stock market returns: The good,the bad,and the state-dependent

Prior research documents a negative aggregate earnings-returns relation. In contrast, we posit that the sign of the relation varies, depending upon the macroeconomic and financial market conditions that exist in the earnings announcement quarter. We argue that the existing macroeconomic and financial market conditions influence market participants’ frame of reference, which in turn affects whether they interpret aggregate earnings surprises to be informative about the expected inflation component of the discount rate, the market risk premium component of the discount rate, or aggregate future cash flows. Consistent with this, we find that the sign of the aggregate earnings-returns relation changes numerous times across our sample period. We also find that market participants interpret aggregate earnings to be informative about changes in expected inflation (market risk premium) when the sign of the aggregate earnings-returns relation is negative (positive). Finally, we identify macroeconomic and financial market conditions under which the aggregate earnings-returns relation is more (less) likely to be negative (positive).     

Truth claims and explanatory claims—An ontological typology of futures studies

Classifications of futures research are usually based on epistemological differences, but we complete these with ontological considerations. The article presents a typology of forecasts, i.e. statements on future events or states. It has two dimensions, truth claim and explanatory claim; each dimension has two values, making the claim or not making the claim. The four outcomes are: forecasts which make both truth claims and explanatory claims (predictions); forecasts which make truth claims, but not explanatory claims (prognoses); forecasts which make explanatory claims, but not truth claims (science fiction); and forecasts which make neither truth claims nor explanatory claims (utopias or dystopias). We regard each outcome as an ideal type, against which forecasts can be measured. We illustrate the use of the typology by presenting an example of each outcome.     

Risk and the cosmopolitanization of solidarities

Abstract

For classical sociologists, national solidarity was a response to the risks and uncertainties of modernity. National solidarity was said to provide the foundations for social order and justice (Durkheim), serve as the basis for political legitimacy (Weber), and address issues of (in)equality (Marx). Throughout the twentieth century, national solidarity seemed to perform these functions adequately, if often at the expense of those not belonging to the national community. However, with the demise of progress as a cultural prophylaxis to contain the future, it is often said that newly emergent world risks spell the end of solidarity. On this view, risk, individualization, and the cosmopolitanization of life worlds are contributing to the fragmentation of societies and pushing solidarity toward expiration. Yet, this jeremiad is based on an anachronistic notion of solidarity, which does not account for the recent adaptations of nationhood. In contrast, I argue that new global risks are not detrimental to the notion of solidarity but rather serve as a precondition for the emergence of cosmopolitanized solidarities. Global culture and political norms from human rights to environmentalism have catalyzed a reimagining of nationhood itself. In order to grasp new forms of solidarity which buttress this reimagined nationhood, I draw on Ulrich Beck’s distinction between three historically specific iterations of the concept of risk, as something that: can be calculated; is malign and incalculable; has the potential to generate goods.     

Timing and future consequences of the peak of oil production

Energy is fundamental for present societies. In particular, transportation systems depend on petroleum-based fuels whose production levels are unsustainable. The inevitability of a peak of oil production (“Peak Oil”) is a now an accepted concept, although its date is still not consensual. In this work we discuss the peak of oil production and analyze the problems it will create. As much as can be inferred at this moment, the impact of the Peak Oil will certainly be significant but can still range from relatively benign to almost catastrophic scenarios. As a direct effect of Peak Oil, the increase in energy prices will be concentrated on the liquid fuels and the transportation sector will be specially affected. We believe that the cheap, wide-scale air transport that our present societies take for granted will revert to a more expensive and restrictive model closer to the selective commercial air transport of the early jet age. In our opinion the present road transportation systems will suffer an important transition that includes a reduced incidence of long distance road cargo movements, partially replaced by increased railway transportation, and, in terms of people commuting, a significant increase of mass transit and electrical vehicles. During this phase of forced adaptation, some countries will face greater challenges than others. However, the future of overall mankind and of particular countries, regions, or any groupings of people, is not yet fixed: it depends on decisions that are being taken at the present moment and on decisions that will still be taken in the future. As such, predicting the impact of the Peak Oil is something that must be done through a continuously refined process of information collection and analysis.     

First steps: towards purposeful activities in scenario thinking and future studies

In this paper, we contribute to the understanding of the field of scenario development and future studies, which has been a key debate in Futures over the past three of four years. Our contribution is less on the philosophical issues surrounding future studies, but more on the hurdles faced by those interested in practising in the area of scenario planning and future studies. The issues presented and discussed in this article arise from a number of action learning research projects that we have conducted with small and medium sized enterprises (SMEs) in Scotland, who have embraced scenario development for the first time as part of their strategic management and learning process.Our contribution is targeted at identifying and understanding the hurdles to be overcome when (such) organisations consider adopting scenario development or future studies. The contribution is designed to first, help those in the field of scenario development and future studies be mindful of these hurdles and to build a trusting relationship between the scenario practioner and the client, and secondly, help those managers willing to engage in such activities to better understand the purpose of such work.First we identify three key hurdles: (a) organisational culture (i.e. tacit assumptions on scenario development and future studies); (b) “client” state of mind; (c) fear of engaging with the outside/fear of the future. We argue that these hurdles are a serious threat to the relevance and effectiveness of futures work. We argue that these hurdles need to be better understood as a basis for improving the impact and contribution that scenario development and future studies can make.Later in this article we propose a framework to help understand the purpose of scenario development or future studies work. This framework can be used at the outset of any engagement or study, to help the “client” to identify the purpose of such work and to understand its role and scope. We argue that this framework contributes to more purposeful, relevant and actionable scenario development and future studies in the future.Unless you changed something in the minds of managers, a scenario project had failed (Harvard Bus. Rev. 63(6) (1985) 139). Going one-step further, we would argue that unless something tangible happens as the result of the scenario development and future studies work, we have wasted our time.     

Mittlerer quadratischer Prognosefehler bei der Prognose des Abwicklungsergebnisses mittels der Chain-Ladder-Methode

Often in non-life insurance claims reserves are the largest position on the liability side of the balance sheet. The determination of adequate claims reserves in two consecutive accounting years leads to the so-called development result, which is defined as the difference of two successive predictors for the claims reserves. If the predictors for the claims reserves are unbiased the expected development result is equal to zero. However, since in claims reserving one predicts future payments the observed development result will in general deviate from the expected value. In the present paper we analyze this deviation. In an example we discuss the results.     

Scenarios and the art of worldmaking

In this exploratory paper we propose ‘worldmaking’ as a framework for pluralistic, imaginative scenario development. Our points of departure are the need in scenario practice to embrace uncertainty, discomfort and knowledge gaps, and the connected need to capture and make productive fundamental plurality among understandings of the future. To help respond to these needs, we introduce what Nelson Goodman calls worldmaking. It holds that there is no singular, objective world (or “real reality”), and instead that worlds are multiple, constructed through creative processes instead of given, and always in the process of becoming. We then explore how worldmaking can operationalise discordant pluralism in scenario practice by allowing participants to approach not only the future but also the present in a constructivist and pluralistic fashion; and by extending pluralism to ontological domains. Building on this, we investigate how scenario worldmaking could lead to more imaginative scenarios: worldmaking is framed as a fully creative process which gives participants ontological agency, and it helps make contrasts, tensions and complementarities between worlds productive. We go on to propose questions that can be used to operationalize scenario worldmaking, and conclude with the expected potential and limitations the approach, as well as suggestions for practical experimentation.     

Lessons from the Financial Crisis on Risk and Capital Management: The Case of Insurance Companies

This article proposes that risk management be viewed as an integral part of the corporate value‐creation process— one in which the concept of economic capital can provide companies with the financial cushion and confidence to carry out their strategic plans. Using the case of insurance and reinsurance companies, the authors discuss three main ways that the integration of risk and capital management creates value:

• 1 strengthening solvency (by limiting the probability of financial distress);
• 2 increasing prospects for profitable growth (by preserving access to capital during post‐loss periods); and
• 3 improving transparency (by increasing the “information content” or “signaling power” of reported earnings).

Insurers can manage solvency risk by using Enterprise Risk Management (ERM) models to limit the probability of financial distress to levels consistent with the firm's specified risk tolerance. While ERM models are effective in managing “known” risks, we discuss three practices widely used in the insurance industry to manage “unknown” and “unknowable” risks using the logic of real options—slack, mutualization, and incomplete contracts. Second, risk management can create value by securing sources of capital that, like contingent capital, can be used to fund profitable growth opportunities that tend to arise in periods following large losses. Finally, the authors argue that risk management can raise the confidence of investors in their estimates of future growth by removing the “noise” in earnings that comes from bearing non‐core risks, thereby making current earnings a more reliable guide to future earnings. In support of this possibility, the authors provide evidence showing that, for a given level of reported return on equity (ROE), (re)insurers with more stable ROEs have higher price‐to‐book ratios, suggesting investors' willingness to pay a premium for the stability provided by risk management.     

Perspectives of Risk Sharing

In this paper we present an overview of the standard risk sharing model of insurance. We discuss and characterize a competitive equilibrium, Pareto optimality, and representative agent pricing, including its implications for insurance premiums. We only touch upon the existence problem of a competitive equilibrium, primarily by presenting several examples. Risk tolerance and aggregation is the subject of one section. Risk adjustment of the probability measure is one topic, as well as the insurance version of the capital asset pricing model. The competitive paradigm may be a little demanding in practice, so we alternatively present a game theoretic view of risk sharing, where solutions end up in the core. Properly interpreted, this may give rise to a range of prices of each risk, often visualized in practice by an ask price and a bid price. The nice aspect of this is that these price ranges can be explained by "first principles", not relying on transaction costs or other frictions. We also include a short discussion of moral hazard in risk sharing between an insurer and a prospective insurance buyer. We end the paper by indicating the implications of our results for a pure stock market. In particular we find it advantageous to discuss the concepts of incomplete markets in this general setting, where it is possible to use results for closed, convex subspaces of an L 2 -space to discuss optimal risk allocation problems in incomplete financial markets.     

Linking simulation argument to the AI risk

Metaphysics, future studies, and artificial intelligence (AI) are usually regarded as rather distant, non-intersecting fields. There are, however, interesting points of contact which might highlight some potentially risky aspects of advanced computing technologies. While the original simulation argument of Nick Bostrom was formulated without reference to the enabling AI technologies and accompanying existential risks, I argue that there is an important generic link between the two, whose net effect under a range of plausible scenarios is to reduce the likelihood of our living in a simulation. This has several consequences for risk analysis and risk management, the most important being putting greater priority on confronting “traditional” existential risks, such as those following from the misuse of biotechnology, nuclear winter or supervolcanism. In addition, the present argument demonstrates how – rather counterintuitively – seemingly speculative ontological speculations could, in principle, influence practical decisions on risk mitigation policies.     

Risk allocation under liquidity constraints

Risk allocation games are cooperative games that are used to attribute the risk of a financial entity to its divisions. In this paper, we extend the literature on risk allocation games by incorporating liquidity considerations. A liquidity policy specifies state-dependent liquidity requirements that a portfolio should obey. To comply with the liquidity policy, a financial entity may have to liquidate part of its assets, which is costly.The definition of a risk allocation game under liquidity constraints is not straightforward, since the presence of a liquidity policy leads to externalities. We argue that the standard worst case approach should not be used here and present an alternative definition. We show that the resulting class of transferable utility games coincides with the class of totally balanced games. It follows from our results that also when taking liquidity considerations into account there is always a stable way to allocate risk.     

Macroeconomic risk and hedge fund returns

This paper estimates hedge fund and mutual fund exposure to newly proposed measures of macroeconomic risk that are interpreted as measures of economic uncertainty. We find that the resulting uncertainty betas explain a significant proportion of the cross-sectional dispersion in hedge fund returns. However, the same is not true for mutual funds, for which there is no significant relationship. After controlling for a large set of fund characteristics and risk factors, the positive relation between uncertainty betas and future hedge fund returns remains economically and statistically significant. Hence, we argue that macroeconomic risk is a powerful determinant of cross-sectional differences in hedge fund returns.